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Real Estate
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Real Estate
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| ESTATES IN REAL
PROPERTY The term "estate" has several different meanings, depending upon its usage. When a person dies, their "estate" is the assets that they leave behind. Many people associate the term "estate" with a large land holding. In real estate law, the term "estate" in real property refers to the degree of interest that a person has in real property. The type of estate is determined according to the person's degree, quantity and extent of ownership. There are two broad categories of estates in real property: freehold, and less-than-freehold. Freehold estates involve "ownership" of a property. Less-than-freehold estates are those interests held by renters or lessees. Notice that both the owner/occupant of a condominium and an apartment renter would have an estate in real property. The condominium owner would have a freehold estate. The apartment renter would have a less-than-freehold estate. Freehold Estates The term "freehold" actually dates back to the middle ages in England, when only "freemen" (as opposed to serfs) could own property. Under old English common law, only property owners could bring a "real" action, as opposed to a personal action for personal damages. What most people think of as "ownership" is a type of freehold estate. There are several different types of freehold estates, including: (1) fee simple defeasible (2) fee simple absolute, and (3) life estates. Fee Simple Defeasible One type of freehold estate is a fee simple defeasible estate. This is where a person owns real property subject to some condition whereby the person could lose title to the property upon the occurrence of some later event (called a "condition subsequent"). This condition could be either a positive or a negative requirement. The term "defeasible" comes from the fact that the owner's title could later be "defeated" because of some action. One common example of a fee simple defeasible estate occurs when a church sells its property. It is not unheard of for a church to attach a condition to the title of the property that if the land is ever used to sell alcoholic beverages the ownership of the land would then revert back to the church. This is an example of a negative requirement, where the subsequent owners retain title unless they violate the stated condition. Fee simple defeasible ownership can also result from some positive requirement. For example, a city in Southern California was given a property in 1898 to use as a school. In the deed, the donor placed a condition which stated that if the land was only to be used as a school. The deed further stated that if the school district ever stopped using the land as a school, the donor (or his heirs) could then repurchase the land for $50. In 1990, the school was closed and the heirs of the donor presented the school district with a check for $50 and demanded sale of the land, which amounted to six acres of land in a residential neighborhood. Since the school district was not using the land as a school, as required by the original deed, the heirs argued that the school district had violated the condition of the original gift. Fee simple absolute ownership is what most people think of when they think of "ownership" of real property. Fee simple absolute means that the person owns the property without any conditions. No prior owner of the property could later take back title because of a later use of the property. Fee simple absolute ownership is the highest degree of ownership of real property; it is the most interest that someone can have in the land. One of the distinguishing characteristics of fee simple absolute ownership is that it is an estate of indefinite duration, meaning that there is no way to determine how long the current owner will continue to own the property. It could be sold tomorrow, it could be held for the owner's entire lifetime, it could even be willed to the owner's heirs. Fee Simple Absolute There is a common misconception that fee simple absolute ownership means that the owner has no encumbrances (such as loans) against the property. This is not the case. Whether there is a loan against the property does not determine whether or not the owner has a fee simple absolute estate in that property. An owner who has no loans against the property has "clear title", not necessarily fee simple absolute There are a number of other names which can be used to apply to fee simple ownership of property. These could include:  fee estate;estate in fee; andestate of inheritance.The term "estate of inheritance" simply means that the owner of the property could will the property to his or her heirs. Life Estate A life estate is where a person owns a property for the duration of the life of some designated person. It is usually, but not always, based on the life of the owner of the property. Once the designated person dies, the ownership of the property would revert to someone else. An example might prove helpful: Mr. Smith is a graduate of Acme University and owns a home near the school. He agrees to give his home to Acme University under the condition that he be allowed to live in the home for the remainder of his life, at which time the university can take possession of the property. He deeds the property to Acme, which then gives him back a life estate in that property. In this example, Mr. Smith is the holder of the life estate in the house. Acme University holds what is called an "estate in reversion". This names comes from the fact that ownership of the property will revert to the university upon the death of Mr. Smith. It should be noted that during the time that the life tenant (Mr. Smith in the example above) owns the property, this life tenant is responsible for all of the costs of the property, including the property taxes. The life tenant cannot allow waste, meaning that the property must be adequately maintained. Life tenants also have the right to lease the property or even to sell the property. In the example above, Mr. Smith would have the right to lease the property, but could not extend the lease period beyond his own lifetime. Mr. Smith would be allowed to give someone a five year lease on the property, but if Mr. Smith died during that five year period, the lease would automatically be terminated and the property would revert to Acme University. Mr. Smith could also sell the property, but could not sell more than his own interest in that property. If Mr. Smith sold the house to someone else, that person would now hold the life estate on the property. Remember, however, that the life estate would still be based on the life of Mr. Smith, not the life of the new buyer. This is an example of a case where there is a life tenancy based upon the life of some other person. It should also be noted that if this buyer died before Mr. Smith died, the buyer could will his or her interest to someone else. Once again, however, that person who inherits the property would only own the property as long as Mr. Smith was alive. Finally, it should be noted that the holder of the estate in reversion (Acme University in the preceding example) could also sell its interest in the property. If Acme sold this interest to some other person or organization, that entity would then hold an "estate in remainder". An estate in remainder is much the same as an estate in reversion, in that the property would revert to the holder of that interest upon the death of the designated person. The difference is that the original entity which granted the life estate holds the estate in reversion, where the buyer of that interest holds an estate in remainder. |
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Copyright © 1998, Real Estate Trainers, Inc.